We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:

Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581

This site Web

Print view: Fraud in America

COMMENTARY:

Fraud in America

The real reason it's called "The Land of Opportunity"

by Stephen Lendman

Monday, 11 October 2010

Ever larger, more sophisticated fraud schemes proliferate. They "roll across America like waves move onto a beach. (They) rise and fall with new innovations and ultimate corrections."

A systemic problem, it's everywhere, especially in savage capitalism's greed-driven system, enriching a global royalty at the expense of most others. In his book "On Fact and Fraud: Cautionary Tales from the Front Lines of Science," David Goodstein examined examples from centuries back to more recent times, including some accusations turning out to be false.

He also reviewed a "History of Fraud in America," starting in colonial (and pre-colonial) times, saying the earliest kinds involved "phony health cures," including snake oil ploys, medical frauds, and other deceptions transitioning to today's "miracle cures and Internet charlatanism."

Largely agricultural early America saw land schemes as well as "deceptive rural living and farming products." Con men either bought or sold land. Victims were often immigrants and Indians. The one best remembered was the 1626 Manhattan Island purchase "for trinkets valued at 60 guilders," about $24. Ironically in a sense, Carnarsie Indians were the culprits as the land wasn't part of Manhattan. Usually, however, indigenous people were victimized, land scams expanding the country west and south, accompanied by others at the expense of the unwary.

Frontier history got crooked politicians and bureaucrats involved, accepting bribes collaboratively with land swindlers. It got worse during corporate America's early days. In 1787, less than 40 existed, mostly to build roads, bridges, canals, and other public projects. Many involved "bribes, kickbacks, and inflated prices" like today but for smaller stakes.

Checks and balances also arose, significantly in free press reporting, but not enough to curb greed or notorious "robber barons" like Jay Gould, Andrew Carnegie, John D. Rockefeller, Cornelius Vanderbilt, JP Morgan, and others, perhaps inspiring Honore de Balzac's maxim that "Behind every great fortune lies a great crime," or words to that effect.

The landmark 1886 Santa Clara County v. Southern Pacific Railroad gave corporations personhood under the 14th Amendment. It also helped proliferate fraud, including stock scams, land grabs, labor exploitation, various types of product and pricing swindling, and much more.

Now recognized as legal persons with full rights without obligations, corporations were on a roll, heading them towards monopoly or oligopoly power. Today more than ever globally with interlocking directorates, market dominance, and complicit governments arranging things their way.

Years back, General Motors negotiated a big heist with bribes and other means to get cities to abandon street cars for buses. It worked brilliantly, but was disastrous for large communities and the public, becoming more dependent on autos. A sprawling suburbia arose. Urban decay followed, so now ghettos proliferate nationally, their needs largely ignored.

Prior to the Great Depression, corporations operated virtually regulation free. That changed, but over time consumer protections eroded. Thereafter, global cartels arranged business friendly environments, manipulated them for profit, and committed greater than ever fraud. It's worst of all on Wall Street, especially after the 1913 Federal Reserve Act gave big banks money creation power, letting them game the system more than ever, including a free hand to commit fraud.

The 1920s stock selling scandals culminated in the 1929 crash. New Deal reforms followed, but what goes around comes around. Deregulation in the 1980s facilitated savings and loan fraud, then crime on the order of Enron, Worldcom, Madoff, other Ponzi schemes, market manipulation, bubbles, derivatives flimflam, embezzling, insider trading, false accounting, phony financial products, misrepresentation, and other scams, conspiracies, "foreclosuregate," and grandest of grand theft bailouts. The Treasury was literally looted of trillions of dollars, government partnering with bankers for plunder, sucking wealth from consumers globally.

Underlying Causes of Fraud in America

Jensen lists eight, including:

an obsession with privacy, freedom being "prized over the risk of being ripped off;"

laws and courts go easy on white collar criminals, the worst of them rich and well-connected to escape punishments for blue collar or violent crimes;

whistleblowing is discouraged, doing it a high-risk undertaking because lawsuits and other type retaliation may follow, including ostracism by fellow employees;

as a result, "incompetent and corrupt audits are routine....the audit trail end(ing) in front of a maze of networked computers or some giant black box that cannot be fathomed;"

CPA audits have flawed designs, firms doing them in jeopardy of losing clients unless issue "clean" reports, and rating agencies face the same issue; and

money corrupting politics, candidates needing large donors for campaigns in return for which friendly legislation and deregulation follows.

As a result, ever larger, more sophisticated fraud schemes proliferate. They "roll across America like waves move onto a beach. (They) rise and fall with new innovations and ultimate corrections." Creative corporate ploys follow new accounting and auditing rules, exponentially growing to become nearly incomprehensible.

Corporate bad guys so far are winning, their excesses continuing unrestrained. Neither legislation, potential lawsuits, or criminal prosecutions deter them. The "weakest front" is the political one because office holders need cash, and powerful lobbyists game the system for them. So one scandal begets another, new ones increasingly greater for larger stakes. Big money always prevails while consumer households lose out.

"Foreclosuregate"

Ellen Brown (http://www.webofdebt.com) does some of the best financial writing around. Her latest deals with foreclosure swindling, involving fabricated documents, forgery, and perjury proliferating "massive fraud," including lost paperwork that "would have revealed to investors that they had been sold a bill of goods - (a package of junk), toxic subprime loans very prone to default." Yet they were cleverly dressed up in legal mumbo jumbo to resemble AAA quality until post-bubble foreclosures exposed the scam, too late to save most victims.

"Millions of US mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents (to) prove who legally owns" them. With millions now in default and homes seized, "judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title."

In fact, major US banks faked documents to speed up foreclosures illegally, a criminal industry/Washington partnership dispossessing defrauded homeowners from their properties. In other words, when pols conspire with Wall Street racketeers, the public gets scammed, in this case millions of victimized homeowners.

In September, "foreclosuregate" emerged after evidence forced Ally Financial (formerly GMAC Mortgage) to stop dispossessions in 23 states where court orders are needed.

On October 8, Bank of America announced it would halt foreclosure sales in all 50 states. Earlier, Ally Financial and JPMorgan Chase said they're doing it in 23 states. PNC Financial Services Group will also for 30 days, and very likely other banks will follow.

On October 8, Obama pocket-vetoed a rushed-through Senate bill to facilitate foreclosure fraud. It would have mandated mortgage and other financial document notarizations in one state (including those done electronically) be recognized in all others. Consumer groups and other critics complained, saying the measure would have facilitated dispossessions faster, and in many cases improperly.

Attorney General Eric Holder then said the Financial Fraud Enforcement Task Force is investigating reports of greater numbers. Seven or more state attorneys general began their own, that if not stopping, at least may slow down dispossessions. More on that below.

Last May, Herman John Kennerty, a Wells Fargo default document group administration manager testified that he typically signed 50 to 150 evictions daily. He also said he didn't independently verify information to which he was attesting, just rubber-stamping it along.

In Florida, problems are especially acute, recent 12th Judicial Circuit state findings showing that 20% of foreclosures set for summary judgment involved deficient documents, according to Chief Judge Lee E. Haworth. In an interview, he said:

"We have sent repeated notices to law firms saying, 'You are not following the rules, and if you don't clean up your act, we are going to impose sanctions on you.' They say, 'We'll fix it, we'll fix it, we'll fix it.' But they don't."

As a result, on September 17, Judge Harry Rapkin, overseeing district foreclosures, dismissed 61 cases. Plaintiffs may refile, however, by repeating the procedure, including paying fees involved.

Overall, the process is riddled with fraud. Mortgage lenders used boiler room tactics, conning borrowers with no knowledge of what they were doing, including the risks. To close deals, some forged their signatures on key documents, pressured real estate appraisers to inflate home values, and created fake W-2 forms to exaggerate applicant incomes.

The Housing Bubble

Make no mistake, the housing bubble was built on an edifice of fraud and was no accident. Catherine Austin Fitts is a former Assistant Housing Secretary. Then from 1994 - 1997, her company, Hamilton Securities, was the lead Federal Housing Administration (FHA) advisor. An expert, she "watched both the Administration and the Federal Reserve (game the system by) aggressively implement(ing) the policies that engineered the housing bubble."

"In 1995, a senior Clinton Administration official shared with me the Administration's targets for Fannie Mae and Freddie Mac mortgage volumes in low and moderate-income communities. We had recently reviewed the Administration's plans to increase government mortgage guarantees - and most of these mortgages would also be pooled and sold as securities to investors."

"Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill....but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents."

"One of the dirty little secrets behind the housing bubble is the longstanding partnership (between) narcotics trafficking and mortgage fraud," both used "to target and destroy minority and poor communities with highly profitable economic warfare."

The model is global, profiting hugely from illicit drugs, money laundering, and economic destruction of poor communities. Business and government officials at the highest levels are involved because of the enormous stakes - an estimated $500 billion - $1 trillion laundered annually through major financial firms, mostly in America.

The companies most responsible "for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money."

They include Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and other familiar names, profiting hugely through criminally engineered fraud, facilitated by government complicity - initially during the Clinton administration, or perhaps earlier.

Banks getting bailout money own, financed, or were financially connected to at least 21 of the top subprime lenders. Twenty have now closed, stopped lending, or were sold to avoid bankruptcy. Nine were California based, including: Countrywide Financial, Ameriquest Mortgage, New Century Financial, First Franklin, and Long Beach Mortgage, scamming homebuyers through criminal fraud.

State Foreclosure Fraud Investigations

As explained above, seven or more state attorneys general began investigations, and reports suggest up to 40 or more may work cooperatively on it. According to Bloomberg.com on October 8:

"State attorneys general led by Iowa's Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as October 12....Lawyers representing the banks are expecting a more widespread investigation, according to Patrick McManemin (of Patton Boggs), a Washington-based law firm that represents banks, loan servicers and financial institutions." Lawsuits will likely follow, at least one now initiated by Ohio Attorney General Richard Cordray against Ally Financial, formerly GMAC Mortgage.

Whether Attorney General Holder and top congressional officials will get on this forcefully remains to be seen. So far, there's more furor than action or tough measures. There's also risk it may subside post-election, given other lame duck session priorities, then a new Congress in January. However, the housing scandal is so huge ("foreclosuregate" one part alone) that momentum may give it legs in 2011.

The situation bears watching. Financial institutions may be penalized, but expect no top heads to roll, just perhaps a few lower-level sacrificial lambs. It's how Washington officials always handle scandals, because they, too, are complicit.

Listen to Lendman's cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.